Contractor management at Sasol Mining

1. Contractor management at Sasol Mining

2. Content • Objectives of the presentation • Background on Sasol Mining procurement • Contractor management learning

3. Objectives • The presentation would try to: • Give background to Sasol Mining procurement • Share the learning made in Sasol Mining on contractor management from a Procurement perspective • The presentation would not: • Cover all safety related issues, COP’s etc • Provide a comprehensive list of terms to consider

4. Procurement at Sasol Mining • Sasol Mining do in the region of R 2,2 billion procurement per annum • Main categories of spend are: • Production equipment • Operating material • Mining services • Consumables • Sasol Mining currently has about 1300 accredited suppliers • Sasol Mining has term agreements covering 80% of spend

5. Contractor management from a procurement perspective • Approach • The first step in successful contract management is a comprehensive strategy on managing the procurement process: • Need • Industry analysis • Sourcing strategy • Supplier accreditation • Procurement channel • Contracting • Contract management • Sasol Mining compiled models for these processes with detailed considerations on what is important to consider

6. Contractor management from a procurement perspective • Approach • Sasol Mining identified a number of Procurement drivers • Complexity reduction • Risk management • Sourcing optimisation • Total cost of ownership reduction • Process efficiency • Value optimisation • Supplier collaboration • Correct Procurement channel • Automation • Not all these drivers are important from a contractor management perspective • The discussion would focus on the drivers with the biggest impact on contractor management

7. Contractor management from a procurement perspective • Complexity reduction • Statistics • Sasol Mining places 233 000 purchase order lines in a year from the 1300 suppliers. • There are 83 000 catalogued items on the Sasol Mining material master • A servicemaster currently in progress would compile about 7 000 catalogued services excluding repairable items • Complexity reduction is at the heart of efficient contractor management from a procurement perspective • Knowing what is needed from the supplier • Classifying services • Cataloguing services • Standardising specifications • Limiting the number of suppliers accredited • Less agreements • Ensuring supplier collaboration

8. Contractor management from a procurement perspective • Complexity reduction • Why Complexity reduction? • Improved compliance on all aspects – compliance decreases when supplier numbers increase • Turnover of suppliers decreases – leading to increased compliance and less pressure on internal resources to ensure new suppliers comply • Decrease in cost • Decrease in maverick spend – Better governance • Better contract management - less pressure on all stakeholders in business

9. Contractor management from a procurement perspective • Complexity reduction - How? • Sasol Mining together with other companies in Sasol group set up a project team to classify and catalogue services • Assigned resources • Knowledgeable people • Standardised methodology • Project management approach • Change management • Term agreements • Sasol Mining started compiling comprehensive scopes of work • Assigned knowledgeable resources • Involved all stakeholders • Clarified deliverables • Standardised across business units • Involved suppliers / contractors in process

10. Contractor management from a procurement perspective • Complexity reduction - How? • Clear accountability for contractor management • Centres of excellence for certain routine services – facilities maintenance • Dedicated, accredited suppliers / contractors with term agreements • Contract ownership by end users of service

11. Contractor management from a procurement perspective • Risk management • Three main risks identified in Sasol Mining: • Supply risks – supplier unable to fulfill contractual obligations • Governance risks – irregularities, process and procedures • Business risks – cost, non-performance, safety • Mitigation steps to reduce risk at Sasol Mining • No award of long term agreements to new entrants • Split award of business • Probation period for high risk spend areas • Right to set-off • No cession of debtors • Penalty and termination clauses • Resources for new supplier development • Alignment between contractual terms and business requirements

12. Contractor management from a procurement perspective • Risk management: How to: • Sasol established the Highveld Business Development Centre to assist as an independent third party with supplier development involving: • Local municipality • Local businesses • Corporates • Business councils • Banks • Sasol Mining introduced an approval entity for high value agreements • Sasol Mining implemented a process for supplier accreditation whereby all aspects relating to the capacity of the supplier are evaluated

13. Contractor management from a procurement perspective • Risk management: How to: • Sasol Mining standardised its contract terms and conditions at the hand of risks identified • Sasol Mining implemented a strict governance process by means of route guides and limited approval authority.

14. Contractor management from a procurement perspective • Sourcing optimisation • Having the correct suppliers or contractors to start with is a result of a comprehensive sourcing strategy • Measuring performance of Sasol Mining and suppliers is important to ensure the right suppliers • Sourcing optimisation: How to • Sasol Mining compiled a sourcing strategy for total spend by category • Sasol Mining introduced rigorous health checks measured on a daily basis as a production report

15. Contractor management from a procurement perspective • Golden rules – learning at Sasol Mining • First develop supplier then contract • Be careful of conflicting interests • Ensure well structured agreements with remedies • Non exclusiveness as far as possible • Effective document management from end users and procurement • Consequence management always in line with agreement • Clear performance criteria and penalties

16. Contractor management from a procurement perspective • Golden rules – learning at Sasol Mining • Standardise indemnity and insurance • No award of long term agreements to new entrants • Split award business • Probation period for high risk spend areas • Right to set-off • No cession of debtors • Penalty and termination clauses